If you’re behind on your mortgage payments and find yourself in a situation where foreclosure could be on the horizon, it’s important that you don’t just sit back and wait. It’s time to take action.
What Triggers a Foreclosure?
Foreclosure is the legal process by which a lender is allowed to recover the amount a borrower owes them on a defaulted loan. They can do this by either taking ownership over the property or selling the property. However, the foreclosure process varies by state. It’s not a cut-and-dry process. There are multiple phases involved – each of which must be executed very precisely by all parties involved.
In order for the foreclosure to start, there must be a triggering event. This triggering event is payment default. It can occur when a borrower has missed at least one mortgage payment, though the timeline varies by lender. In some cases, it won’t start until there are at least two missed payments. (Either way, you’ll hear from your lender once there’s a missed payment.)
In the early stages, the lender will attempt to work with you to get back on track and/or catch up on payments. (It’s important to point out that lenders do not want to enter into foreclosure. It’s a time-consuming, resource-intensive process for them. They have no interest in taking someone’s home from them. They only use it when they absolutely have to.) But once you fall three months behind without making a payment, they’re forced to start the process.
Foreclosure usually begins with the lender sending a demand letter or notice that states you must bring the mortgage current or risk legal action. After four months of missed payments, you’ll receive a notice of default (NOD). This is a public notice that gives you 30 days to get current on payments before a formal foreclosure process begins.
Depending on your location and state laws, the lender will proceed to file certain documents and forms with the court and schedule a sale of the property. There are usually laws in place that require the lender to advertise the property and let the public know that it’ll be available at auction.
There’s usually a two-to-three-month period between when the public notice goes out and when the auction occurs. During this time, you may still have an opportunity to get current on payments. If you fail to do so, the home will be auctioned or taken into ownership by the lender.
As mentioned before, lenders don’t want to foreclose on properties. Thus, it’s very likely that the lender will continue to work with you in an attempt to help you get caught up. However, if you’re unable, the foreclosure will continue.
6 Tips to Avoid Foreclosure
No homeowner wants to go through foreclosure. It’s a painful, complicated, stressful, and messy situation. The public nature of foreclosures also induces a sense of shame and embarrassment. Thankfully, there are several things you can do to avoid it altogether.
Let’s take a look at some helpful tips and strategies for avoiding foreclosure:
1. Reinstate the Loan
If you have enough cash on hand, this is the best and most logical option. You reinstate the loan by making up all of the missed payments (including principal, interest, fees, expenses, etc.). The laws in your state will dictate the amount of time you have to reinstate the loan. (You’ll also have to check the terms of your mortgage and/or deed of trust.)
2. Create a Repayment Plan
You might not be able to reinstate the loan, but it’s possible that you can work with the lender to create a repayment plan. The terms of the plan will be outlined by the lender, but usually allow you to stay current with your payments while also making up for missed payments over time. A lender may create a repayment plan that stretches anywhere from three to nine months, depending on the situation.
3. Ask About a Forbearance Agreement
This is another option that could be on the table. Forbearance agreements, which were quite common during the height of the COVID-19 pandemic, occur when the lender gives borrowers permission to make reduced mortgage payments (or even no payments at all) for a period of time. A typical forbearance period is for three months (though it can extend for six months or longer if the lender agrees).
4. Modify the Loan
A loan modification is precisely what it sounds like. The lender will work with you to adjust the original terms of the loan in an effort to reduce your monthly payment and provide some financial relief. The modification may involve any or all of the following: reducing the interest rate; adding overdue amounts to the loan balance; extending the length of the loan; etc.
5. File for Bankruptcy
Most people are under the assumption that you lose your home when you file for bankruptcy, but this isn’t always the case. Chapter 13 bankruptcy, for example, can help you stop foreclosure and keep your home . Chapter 7 bankruptcy, on the other hand, probably won’t save the house (unless you have a ton of equity in it). You will, however, get some relief from the “automatic stay” rule, which could buy a couple of extra months. All that to say, speak with a bankruptcy attorney to get legal advice for your situation.
6. Sell Your House for Cash
If you can’t work things out with the lender and you’re worried that foreclosure may be coming down the line, you can always try to sell your house and escape the situation altogether. (This obviously won’t work if you’re underwater with your mortgage, but can be helpful if you have some equity in the property).
Because time is of the essence and there are some complications, you probably can’t list your house the traditional way. The best option is to work with an experienced cash home buyer.
Sell Your House With Light Street
At Light Street, we specialize in buying homes for cash. We often work with people who are in tough financial situations and/or have fallen behind on payments and need to sell their homes fast for cash. If that’s you, we would love to help.
The Light Street process is as easy as 1-2-3. First, you’ll need to fill out this form to request an offer online. Next, we’ll analyze your property and send you a no-obligation cash offer within 24 hours. Finally, if you decide to accept the offer, we’ll schedule a stress-free, quick closing in as little as seven days.
The great thing about working with us is that you’ll never have to deal with inspections and appraisals. Plus, there are no commissions, fees, or closing costs – saving you thousands!
Want to learn more? Please contact us today.